The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Almost 50 per cent of Bahamian employers are “more than three months late” in paying National Insurance Board (NIB) contributions on their workers’ behalf, an actuary urging an end to “laissez faire” compliance efforts.

Derek Osborne, who compiled the recently-released ninth NIB actuarial review, said “less than 25 per cent” of monthly contributions were paid on time - the 15th of the following month.

However, noting that just 10 per cent of due NIB contributions remained outstanding after 90 days, Mr Osborne said this number - combined with the 50 per cent employer delinquency rate - showed it was small businesses that “consistently pay late”.

The NIB actuarial review highlights just how difficult the Government may find it to enforce compliance with its Value-Added Tax (VAT), and why it wants to concentrate its efforts on the 2,800 businesses with turnover above $100,000 - who generally appear to pay their bills on time.

To deal with NIB’s compliance problems, Mr Osborne recommended the Bahamian social security system introduce a heightened “penalty or surcharge” regime.

This, he suggested, could involve fining companies $1 per employee, per week that NIB contributions remained unpaid, or levying an initial 10 per cent surcharge plus interest. The interest rate could be based either on Bahamian Prime or prevailing commercial bank lending rates.

“The current penalty for late paid contributions is minimal - interest at the Prime rate (now 4.75 per cent per annum) - and it is not consistently applied,” Mr Osborne said.

“With only a minimal penalty for contributions paid late, the Fund is losing interest on monies that could have been invested had they been received earlier.”

Calling on NIB to review these recommendations “at the earliest opportunity”, Mr Osborne added: “NIB has generally had a laissez faire approach to enforcing compliance -penalties for late or non-payment are minimal, prosecutions are used only as a last resort and they are often applied selectively.

“Further, benefits are paid for periods of unpaid contributions if employment can be confirmed, but without first collecting outstanding contributions. All of these have resulted in a lax culture among employers towards paying contributions.”

Compliance was described as NIB’s “greatest administrative challenge”, with just 75 per cent of the workforce making monthly contributions, and only 23 per cent of payments made on time in 2011.

Summing up the consequences, Mr Osborne added: “The failure of so many employers and self-employed persons to make regular contributions will result in thousands of workers retiring without a secure source of income in old age.

“And since contributions are not being paid for all periods worked, many who qualify for a retirement pension will be awarded less than what they would have received had they contributed for all employment periods.”

While tying Business Licence renewals to being in ‘good standing’ with NIB had improved compliance in the past two years, Mr Osborne added: “Adopting a zero-tolerance approach to non-compliance is required to make a significant change in employer behaviour.”

Implicity backing the Government’s move to create a Central Revenue Agency (CRA), which will be responsible for administering VAT and all other taxes, Mr Osborne suggested that NIB also pay it a fee for collecting social security contributions.

And, in return, NIB would be responsible for making pension and benefit payments to all public servants.

Elsewhere, Mr Osborne said Bahamians who held two or more jobs “remain inadequately covered” by NIB.

Only the main employer of such workers was required to pay contributions on their behalf, meaning that total earnings were not covered. As a result, these workers would be entitled to retirement and short-term benefit income below what should be due to them.

Recommending that employers pay NIB contributions for all workers, Mr Osborne added: “Where the total wages on contributions paid in any given year exceeds the annual wage ceiling, appropriate refunds could be made to the employee as well as all associated employers.”

Adding that employed persons who also worked as self-employed tradesmen should be given the option of “maximising their insurance coverage” by contributing as the latter, Mr Osborne said just under 30 per cent of the Bahamas’ self-employed workforce paid contributions in 2012.

Responding to complaints that the NIB contribution form for self-employed persons was too complex, Mr Osborne suggested that the Board implement a system where persons could make “flexible, lump sum” payments as their earnings allowed.

“The NIB provides a relatively generous benefits package for a low contribution rate, and thus its financial sustainability often comes into question,” Mr Osborne concluded.

“The key challenge for NIB regarding financial sustainability is determining when will be the right time to increase the contribution rate.

“Key risks associated with growing the Fund that could affect long-term sustainability are continued high operating costs, low investment returns, imprudent use of reserves for non-NIB purposes, and the lack of political will to implement meaningful reforms in the future.”